Should You Subscribe to Vedant Fashions IPO? | Vedant Fashions (Manyavar) Limited IPO Detailed Analysis

The Owner Company of the Leading Men’s Wedding wear brand Manyavar- Vedant Fashions Limited has come up with its Initial Public Offer (IPO). The IPO window is open from Friday 4th February 2022 to Tuesday 8th February 2022. This IPO is purely an offer for sale of Rs. 3,150 Cr. Is this IPO good for long-term investment and should you subscribe for this IPO or not. Know all about this IPO in detail in this article as we move ahead.

1) IPO Details:

Vedant Fashions- IPO Details

• The IPO Window of Vedant Fashions is open between 04th February 2022 to 8th February 2022.
• The Issue Size of the IPO is Rs. 3,149 Cr. which is fully an Offer for Sale (OFS).
• The IPO is getting listed at both the stock exchange- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• The price band of the IPO is Rs. 824 to Rs. 866 per equity share.
• The Face Value is Rs. 1 per equity share.
• The Investor Quota of the IPO is as follows Qualified Institutional Buyers (QIB)- 50%, Non-Institutional Investors (NIIs)-15%, and Retail Investors- 35%.
• The IPO Lot consists of 17 shares in 1 lot and multiples thereof up to 13 Lots.
• The Allotment Date for Vedant Fashions IPO is 11th February 2022 and it will get listed on the Stock Exchange on 16th February 2022.
• The objective of the Issue :
o Achieve the benefits of listing the Equity Shares on the Stock Exchanges; and
o Carry out the Offer for Sale of up to 36,364,838 Equity Shares by the Selling Shareholders.
• The stake of Promoter’s & Promoter’s Group in the company Pre-IPO was 92.4% which will go down to 84.9% post listing of the IPO.

2) About Company:

• Vedant Fashions Limited is the largest company in India in the men’s Indian wedding and celebration wear segment in terms of revenue, OPBDIT, and profit after tax for the Financial Year 2020 (Source: CRISIL Report).
• According to CRISIL, its ‘Manyavar’ brand is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence, as of Financial Year 2020. The company owns famous brands like Manyavar, Mohey, Mebaz, Manthan, and Twamev.
• It has established a multi-channel network and introduced brands by identifying gaps in the under-served and high-growth Indian wedding and celebration wear category (Source: CRISIL Report). It focuses on spreading India’s vibrant culture, traditions and heritage through its aspirational yet value for money brands at a diverse range of price points.
• It offers a one-stop destination with a wide spectrum of product offerings for every celebratory occasion and aims to deliver an aristocratic yet seamless purchase experience to customers through its aesthetic franchisee-owned exclusive brand stores.
• The company follows asset-light in respect of plant, property, and equipment which enables the company to achieve a high return on capital employed, primarily due to the nature of sourcing and manufacturing operations, with a substantial majority of sales being generated through franchisee-owned EBOs.
• As of September 30, 2021, VFL had a retail footprint of 1.2 million or 0.12 Cr. square feet covering 535 EBOs (including 58 shop-in-shops) spanning across 212 cities and towns in India, and 11 EBOs overseas across the United States, Canada, and the UAE, which are countries with a large Indian diaspora. The company also have an online presence via ‘www.manyavar.com’
• During the six months ended September 30, 2021, the company’s products were sold across 825 Multi-Brand Outlets (MBOs) (including shop-in-shops) in 27 states and 332 cities across India.
• In addition to franchisee-owned EBOs and MBOs, the company also sells a portion of brand products through Large Format Stores (LFSs) operated by third-party retail organizations. During the six months ended September 30, 2021, products were available across 145 LFSs in 20 states and 43 cities across India.

Product Portfolio of the Vedant Fashions

Brand Product Portfolio Launched Year Segment
Manyavar Men’s- Kurta, Sherwani, Jackets 1999 Mid-Premium
Mohey Women’s- Lehenga, Saree, and accessories 2015 Mid-Premium
Mebaz Menswear – Kurtas, Indo-westerns, Sherwanis, jackets, suits, and accessories.
Womenswear – Lehengas, sarees, stitched suits, and Kurtis.
Kidswear – Lehengas, gowns, frocks, kurtas, suits, and accessories. 2017 Mid-Premium to Premium
Manthan Kurta 2018 Value
Twamev Kurta sets, Sherwanis, Indo-westerns, suits, and accessories. 2019 Premium
Source: Vedant Fashions Limited RHP

3) Industry Overview:

i) Ready-Made Garment overview:

• The size of the ready-made garment (RMG) retail market is estimated to have grown at a CAGR of approximately 9% to Rs. 5.7 Lakh Cr. between Financial Years 2015 and 2019. The domestic market is expected to continue to grow strongly until Financial Year 2025, clocking up to Rs. 8.2 trillion, registering a CAGR of about 18%-20% between Financial Years 2022 and 2025.
• Growth Drivers for growth of Ready-Made Garment:
o Young Demographics in India
o Rising urbanization
o Rising Share of working women
o Shift towards RMG
o Deeper penetration of branded players
o E-Commerce
o Increasing retail penetration
o The share of men’s wear is projected to attribute approximately 44% of the retail apparel market in Financial Year 2025, clocking the highest growth rate of nearly 20% to 22% between Financial Years 2022 and 2025, because of the availability of a wide range of brands, designs, colors, sizes, fittings, and fabrics, acceptance of smart casual attire among corporates, global fashion awareness among the youth, and a favorable young demographic in India.
o Women’s wear and kids’ wear are projected to grow at a CAGR of 18% to 20% between Financial Years 2022 and 2025, respectively.0

ii) Competitive Landscape:

Vedant Fashions Limited: Industry Overview- Men’s wear competitive landscape

Source: Vedant Fashions Limited RHP
Vedant Fashions Limited: Industry Overview- Women’s wear competitive landscape

Source: Vedant Fashions Limited RHP
• Branded apparel market, which forms approximately 30% of the overall apparel retail market is growing faster and is expected to reach around 35%-40% of the overall apparel retail market and to grow at a CAGR rate of 12%-13% between FY20-FY25.

iii) Ethnic Wear Market Market:

Vedant Fashions Limited: Industry Overview- Retail Market

• Ethnic wear accounted for approximately 32% of the apparel retail market as of Financial Year 2020 with women’s wear being the largest segment.
• Men’s ethnic wear is the second-largest category and has a share of approximately 10% of the overall ethnic market. It is dominated by the Indian wedding and celebration wear market which accounted for approximately 80% of men’s ethnic wear sales and includes sherwanis, kurta jacket sets, kurta pajama, Indo-western apparel, etc.
• The Indian Wedding & Celebration Wear is expected to grow at a CAGR rate of 6% between FY20-FY25.
• A large portion of ethnic wear remains unbranded with the branded segment accounting for 30% to 35% of the overall ethnic-wear retail market. However, the branded segment is growing faster than the unbranded segment due to a superior customer experience, a better merchandise mix, standardized pricing, brand strength, and further expansion of players beyond tier-II cities.

iv) Indian Wedding & Celebration Wear Market:

Vedant Fashions Limited: Industry Overview- Indian Wedding & Celebration Wear Market

• The Indian wedding and celebration wear category grew a CAGR of approximately 9.5% from Financial Years 2015 to 2019 driven by weddings, family functions, and festivals.
• CRISIL Research expects the Indian wedding and celebration wear apparel market to grow at a 15% to 17% CAGR over the Financial Year 2022 to 2025 period, reaching Rs. 1.3 Lakh Cr. to Rs. 1.4 Lakh Cr. by Financial Year 2025, led by the fundamental nature of the industry, higher spending per consumer, and the increasing trend of multi-day wedding functions in India.
• The share of branded apparel retailers within the Indian wedding and celebration wear apparel market is currently low, at approximately 15% to 20%, indicating huge potential for branded players. Players, such as Vedant Fashions Limited (VFL) with its brands Manyavar, Mohey, Twamev, Manthan, and Mebaz, and competitors such as Nalli’s, Jahanpanah, Ritu Kumar, and Neerus command a dominant position.
• The branded segment is set to grow at a CAGR of 18% to 20% between Financial Year 2020 and Financial Year 2025 and accounts for 28% to 32% of the Indian wedding and celebration wear market.

• Key Growth Drivers:

o Huge Domestic Market of ~1 Cr. weddings per year.
o Multi-Day and Multi-Event wedding celebrations
o Rising income levels lead to higher discretionary spending
o The increasing tendency of wearing appropriate celebration wear for respective festive events
o Increasing association with brands in celebration ethnic apparel
o Increased penetration of branded players in tier-II and tier-III markets.
Vedant Fashions Limited: Industry Overview- Indian Wedding and Celebration Wear (Competitors)

4) Financials:

i) Revenue & Profitability Growth:

Vedant Fashions: Financials- Revenue & Profitability

• The Revenue of the company has shown degrowth in CAGR terms between FY19 to FY21 of 16%. The revenue of the company was Rs. 800.7 Cr. in FY19, which grew to Rs. 915.5 Cr. in FY20, and fallen down to Rs 564.8 Cr. in FY21. The Revenue of the company in H1FY22 was Rs. 359.8 Cr.
• The Net Profit or Profit After Tax (PAT) of the company has shown a similar trend like revenue where the profit of the company has reported a negative CAGR rate of 13.2%. While the PAT of the company de-grown by 43.8% in FY21. The Net Profit of the company was Rs. 98.4 Cr. in H1FY22.

ii) Vedant Fashions: Financials- EBITDA and EBITDA Margins (%):

• The company’s EBITDA of the company stood at Rs. 160.4 Cr. in H1FY22. While the EBITDA margin of the company has remained above 40% over the quarters which is quite strong.

iii) Sales Mix:

a) Channel-Wise:

• Vedant Fashions Limited is highly dependent on the performance of its Exclusive Brand Outlets (EBOs). The EBOs sales contribute over 85% of the total sales of the company. Sales from the EBOs channel were 88.1% in H1FY22 and 90.1% in FY21.
• The other channel through which the company performs its sales function is Multi-Brand Outlets (MBOs) & Large-Format Stores (LFSs), and Online Platforms.
• The MBOs and LFSs have contributed below 10% to the total channel sales over the years. While Online channel has contributed 3.7% to the total channel sales as of H1FY22.

b) Brands-Wise:

Vedant Fashions: Financials- Sales Mix- Brands Wise

• The company‘s product portfolio like Manyavar, Mohey, Manthan, Tawmev, and Mebaz where the Manyavar brands contribute more than 80% to the customer sales of the company over the years.
• The Mohey brands contribute around 6%-8% of the total sales customers of the company between FY18-FY21.
• The Other brands like Manthan, Mebaz, and Twamev contribute around 11% of the total sales mix as of H1FY22.

c) Geographical Mix:

Vedant Fashions: Financials- Sales Mix- Geographical Wise

• The Tier-1 Cities contributes most to the revenue of the EBOs sales of the company which stands at around 44%-45% as of FY21 and H1FY22 respectively.
• The Tier-2 Cities sales to EBOs stand at around 42% in FY21 and 39% in H1FY22.
• Tier-3 Cities contributes very low to EBOs sales which stands at around 13% as of H1FY22, which was 12.3% in FY21
• The International EBOs sales stand at 3.6% as of H1FY22.

5) Key Strengths & Risks:

i) Strengths:

• Market leader in Indian celebration wear market with a diverse portfolio of brands catering to the aspiration of the entire family
• The large and growing Indian wedding and celebration wear market is driven by increased spending on such wear
• A differentiated business model combining the strength of retailing with branded consumer play
• Omni-channel network with the seamless integration of offline and online channels
• Technology-based strong supply chain and inventory replenishment system is driven by system-wide data analytics, strong presence, and longstanding vendor relationships

ii) Risks:

• A significant portion of the company’s Sales of Customers is franchisee-owned Exclusive Brand Outlets (EBOs). The company’s inability to maintain, renew or enhance relationships with franchisees could adversely affect our business, results of operations, and financial condition. As of September 30, 2021, the company is having over 300 franchisees and a total of 546 EBOs (including 58 shop-in-shops and 11 international stores) globally, spread over an aggregate retail floor space of approximately 1.2 million square feet in 212 cities and towns in India and 8 cities internationally.
• Other than designing products, the company relies on outsourcing a significant proportion of production processes and activities to third parties, without exclusivity arrangement which could lead to disruption of the company’s performance if there are some problems with the third party manufacturers.
• The company’s warehouse, factory, and a majority of its third-party manufacturers are exclusively based in a single geographical region- Kolkata.
• The company’s business depends on the organization of weddings, festivals, and other ethnic celebrations, and may be affected by seasonal variations, which may adversely affect business, financial condition, and results of operations.
• Tough competition might arise from its just next competitors like Sabyasachi, Ritu Kumar, Aditya Birla Fashion Retail Limited, Reliance Retail, etc.

What Should Investors Do:

Currently, the Grey Market Premium (GMP) of the stock is around 5% over the price band and hence not much listing gain is available here. Investors with a long-term perspective should invest only after analyzing the business and the industry very well.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.